August 06, 2004
Climate Change a Nuisance? Nine State and City Attorneys General Bet a Lawsuit On It
by William Baue

The first climate change lawsuit against corporations, aimed at the top five US carbon dioxide
emitters in the utility industry, cites federal common law on public nuisance.

As predicted, it was only a matter of time before the filing of the first climate change lawsuit
against corporations. The prediction was first fully articulated in a paper published by Yale Law School graduate
David Grossman in the February 2003 edition of the Columbia Journal of Environmental Law,
which presents the legal merits of tort-based climate change litigation.

The
prophecy was fulfilled late last month, when attorneys general (AGs) from eight states and New York
City filed a climate change lawsuit
against the top five domestic emitters of carbon dioxide (CO2), the primary pollutant causing
global warming. These include American Electric Power (ticker: AEP--226 million tons of annual CO2
emissions), Southern Company (SO--171 million tons), Tennessee
Valley Authority (a federal corporation--110 million tons), Xcel Energy (XEL--75 million tons), and Cinergy
(CIN--70 million
tons). Estimated CO2 emissions are based on US Environmental Protection Agency (EPA) statistics from its eGRID database for the year 2000.

"People are increasingly turning to the courts as mechanisms for the achievement of social
goals," said Phil Rudolph, an attorney with Washington, DC-based law firm Foley Hoag and former international general counsel for McDonald's
(MCD). "If
lawsuits are being brought against food companies for obesity--a condition, unlike climate change,
as to which the person bringing the lawsuit must be viewed as having some personal
responsibility--then it seems inevitable that suits will be brought against companies alleging
complicity in global warming."

Filing in federal district court in New York, the AGs from
California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont, and Wisconsin invoked
federal common law of public nuisance, a statute imported from olden English common law. This
strategy evoked mockery from Scott Segal, director of the Washington, DC-based Electric Reliability
Coordinating Council (ERCC--which
includes Southern Company) and a partner at the law firm Bracewell and Patterson, which also represents the industry.

"This brings new meaning to the term 'nuisance lawsuit,'" said Mr. Segal. "They're trying
to apply some ancient legal doctrine that was developed to deal with trivial nuisances along the
lines of a neighbor throwing trash in the yard next door to this sprawling, ambiguous, and
scientifically questionable notion of climate change--there's not a chance it will hold up in
court."

"I think it is a mistake to demean a nuisance cause of action on the grounds that
its origins are so old," Mr. Rudolph told SocialFunds.com, though he also questions whether the
case will make it to judgment before a settlement is reached. "The fact that the doctrine still
exists after all this time suggests a degree of staying power and continued relevance that should
not be minimized."

The Investor Network on Climate Risk (INCR), a coalition of institutional investors representing over $1
trillion in assets, anticipated this kind of legal action and has urged companies they hold to be
proactive.

"This suit is an example of the type of legal risk that investors have feared
their companies are exposed to in not adequately addressing climate change," INCR spokesperson
Nicole St. Clair told SocialFunds.com.

However, the defendant companies have not
necessarily been sitting idly by on climate change. For example, AEP recently agreed to the terms
of a shareowner resolution asking them to prepare a report on its plans to mitigate climate change
risks.

"Since we share your position that management and the Board have a fiduciary duty
to carefully assess and disclose to shareholders appropriate information on the company's
environmental risk exposure, we have agreed to implement your request" wrote AEP President and CEO
Michael Morris and Boardmember Robert Fri in a February 17, 2004 letter to Connecticut State Treasurer Denise Nappier, lead filer of
the resolution.

The report will be posted on AEP's website on September 1, according to
Pat Hemlepp, AEP director of corporate media relations. Mr. Hemlepp also points out that "AEP is
an industry leader in taking action to address climate change" and that AEP has committed to
capping and reducing its CO2 emissions by a cumulative 10 percent by 2006 as the sole US utility in
the Chicago Climate Exchange.
Moreover, AEP has addressed all of the "readily available solutions" cited by the AGs, including
increasing the efficiency of coal-fired plants, diversifying its generation portfolio into biomass
and wind, and investing in carbon sequestration.

Mr. Hemlepp also suggested that the
lawsuit will only distract AEP from these efforts.

"Filing lawsuits is not a constructive
way to deal with this issue--dealing with this sort of litigation requires resources and energy
that could be put to better use elsewhere," Mr. Hemlepp told SocialFunds.com.

Mr. Rudolph
agrees.

"In my 15 years of litigation I became fairly firmly convinced that litigation is
one of the least effective or efficient tools for solving problems," he said. "Most of the costs
of such lawsuits are borne by the defendants, who can be forced to produce vast volumes of
documents and to expend financial and human resources to make witnesses available for
testimony--and in the US, unlike most other jurisdictions, each party is responsible to pay its own
costs, regardless of whether they win or lose."

However, unlike the tobacco companies
who are forking out $206 billion over 25 years in response to the 1998 Master Settlement Agreement,
the utility companies are not being asked by the AGs to pay a single cent in damages.

"The most significant difference here from the tobacco cases is that the AGs are not seeking
damages, but are looking exclusively for a form of "equitable relief" intended to address the
underlying problem itself," said Mr. Rudolph. "This reinforces my belief that the suit is intended
to force the courts to provide a form of regulatory or public policy relief that the AGs feel the
federal regulators have failed to undertake."

"This case, and others that are sure to
follow, will almost certainly have the effect of raising the profile of the climate change issue,
and I suspect will force regulators to pay more attention to the issue," he added.